The rise in earnings of emerging-market equities are showing signs of flagging. Momentum indicators show that the developing market rally is losing pace. MSCI Emerging Market Index’s has hit a record high of 17 percent this year.
The MSCI EM’s 14-week relative strength index has risen to 74, a level not seen since 2009. The shorter-term 14-day RSI is also above 70, the threshold for overbought conditions.
Although the benchmark climbed for six straight sessions through Monday, it is approaching a resistance level formed by the trend line connecting the peaks in 2011, 2014 and 2015. Other signals also point to some overheating.
“The speed of the rally has been very impressive, and investors might need a breather, even if the long-term trend remains pretty bullish,” Andrea Tueni, a trader at Saxo Bank in Paris, said by phone.
“The index is now getting into a strong resistance zone with the descending trend line and also the 2014 and 2015 highs. These levels won’t be easy to break.”
Read more at Bloomberg.